Shawn Walter: Numbers Tell The Profitability Story

When industry folks ask me questions, I turn to the data. When I have questions, I turn to the data. So in today’s feeding environment, the most logical way to find profitability drivers is to crunch the numbers.

Shawn Walter, Professional Cattle Consultants | Jul 08, 2011

When industry folks ask me questions, I turn to the data. When I have questions, I turn to the data. So in today’s feeding environment, the most logical way to find profitability drivers is to crunch the numbers.

Along with associate Ron Hale, we recently analyzed closeouts from nearly 450,000 head from 2004 through 2009.

The standard deviation was $82/head, which means there was about a $250/head variation within each month between the highest money getters and the lowest. So we sorted them by high-, mid- and low-profit groups.

High-profit lots had 56.20% Choice or better carcasses with 12.28% in the premium Choice category, while low-profit lots had 49.83% Choice or better and 9.6% premium Choice. Of equal interest, the high-profit lots had almost 13% yield grade (YG) 4s and 5s compared to 11% for low-profit lots. The additional carcass weight and improved quality grade overcame the YG discounts (and probably additional carcass-weight discounts) netting more profit to the bottom line.

So, out jumped the surprises: higher YG and higher quality grade are both linked to higher profit.

That got us profiling cattle based on some of those traits. We sorted cattle on their gain, grade, hot-carcass weight, days on feed, and the list could go on and on, but we stopped there for now.

One clear result was that many of the same trends that existed in the profitability profiles were present in the high-, mid- and low-grading cattle. Those with the highest quality also had the heaviest finished weights (1,305 lbs. vs. 1,276 lbs.), the best average daily gains (3.18 lbs. vs. 2.97 lbs.) and 13-lb. heavier carcasses.

We often think of tradeoffs between carcass performance and feedlot performance – that you have to have one or the other. What we really saw was that the best-grading cattle were both in the upper profitability and best feeding performance groups.

Looking at it from a feed utilization standpoint, this makes sense. If an animal is more efficient at metabolizing feed nutrients for gain there is potentially more energy available for fat deposition, meaning fewer YG 1s and 2s, and more Choice and Prime carcasses. This is, of course, dependent on the level of feed intake.

We didn’t have health data, but healthy cattle gain and grade better, so health is very likely a factor, too.

Days on feed and placement weight were not significantly different between the high- and low-grading groups, so the higher grade didn’t come from longer feeding periods. As you might expect, the highest-quality grading cattle had almost twice as many YG 4s and 5s as the low-grading cattle (16.2% vs. 8.2%). Still, higher grading cattle were about twice as profitable as low-grading cattle, with an average return of $35.21/head compared to $18.03.

Even with those YG percentages, we believe overall and as a trend, we’ve seen cattle underfed by 30-40 days. They haven’t reached that point where feed costs start exceeding the value of the cattle.

You can add on additional pounds until performance reaches a point where you actually start losing money, but up until that point every pound you add is improving profitability and generally improving quality. If you’ve got the type of cattle that will grade and if you’re monitoring that cost of gain, you can really push them to where you’re increasing grade and profitability at the same time.

If you know the genetics, you can feed harder and longer. If they’re unknown it may be a riskier gamble.

Bottom line: The numbers tell me profit is tied to performance and quality. Feeders can make more money on the cattle designed to convert, gain and grade; and those traits can and do exist in the same package.